In the face of persistent, bidirectional pressure on their margins, health system leaders are beginning to rethink their enterprise strategic and financial goals. Systems have historically prioritized volume and topline revenue growth, concentrated in core high-profit service lines, to guarantee yearly performance. But as systems see both revenue and volume decouple from margin, leaders recognize they can neither grow revenue fast enough to outpace cost growth, nor cost-cut their way to profitability. In this environment, they’re shifting their focus to long-term sustainability.

This shift is different from past eras of intense margin pressures (for example, after the Global Financial Crisis), when health systems could withstand a margin squeeze until they returned to business as usual. Health system leaders are seeing the conventional wisdom underpinning their very business model weaken and erode. That means they need to address temporary instabilities while simultaneously setting up their enterprises to digest structural changes in care delivery. Erosion of the hospital business model, weakening of supplemental revenue sources, and drugs supplanting procedures as the central ‘intervention’ in healthcare all signal the need for a more transformational approach.